Starting your own Fund/Firm

So, this is something I haven't seen discussed on the site before in detail, only tangentially. Has anyone on here gone through the process of (or is knowledgeable about) starting your own real estate investment fund in detail? Obviously, things like strategy, fundraising, partnership structure, etc have to be planned, but I'm curious if anyone has actually done this and if so, if you have any insight from your experience as to what the biggest challenges were, the most tedious things you had to do, pitfalls, etc.

 

Thanks, that's a great thread - bookmarked it earlier in the year. I'm really trying to get more of the nuts and bolts though, and more from a REPE / value add perspective if possible, although there is a lot of overlap with development. Really want to try and get insight on legal process, ramp up time, etc.

"Who am I? I'm the guy that does his job. You must be the other guy."
 

What are your specific questions on the legal side of things? The business will funded through the fees you generate off the fund entity. Given that this will be your first fund it's probably going to be a Reg D 506 unregistered offering. That will likely cost you $25k - $50k depending on who you select as your counsel. Assuming you select a law firm with decent experience in this space it will probably take 3 - 6 months to document everything and prepare the PPM. You can 100% do it for cheaper, but it will take longer and you might not have all the bells and whistles someone like K&E would provide.

While the documents are being drafted you should be out marketing your fund. I would say it's typical to schedule a first closing once you have raised about 20% - 25% of your fund. You can certainly hold a first closing with less though. Fund raising is a total grind. However long you think it should take, double it.

A lot of these details depend on exactly what you are looking to do. I have some experience in this space if you have more specific questions.

 

Also - not real estate specific, but check out the fundraising episodes on the Private Equity Funcast podcast. They are in middle market trad PE (focus on software firms), but they have some good insights on fundraising process which are going to be similar regardless of where you're focusing.

https://itunes.apple.com/us/podcast/private-equity-funcast/id712327513?…

 
Best Response

I have a lot of experience working on fund formation in a top group at a global law firm. PM me with any questions, but here are some general notes that are not to be construed as legal advice and are solely my opinion as an individual:

  1. First step is going to be structuring your fund. This is going to involve a law practice with a deep bench in terms of tax law. Basically you're going to be spending a decent amount of time establishing where your LPs are coming from, what sorts of feeder vehicles and blockers will need to be put in place to ensure the correct taxation treatment for each LP.

  2. Since it is your first fund, you will also be figuring out the "upper tier" - i.e. the structure and operating agreements of the management company that will provide investment advisory services to each fund you launch regardless of vintage.

Side note: I think the 25-50k price tag quoted by picklemonkey is a severe underestimation of what your legal setup costs will be by at least an order of magnitude (especially at a place like K&E), but never say never, right?

  1. Once upper tier and Fund I structure is in place, you'll set about putting together the offering memoranda and subscription agreement forms. This will take some time, maybe a month or two depending?

  2. Once the structure, the offering docs, and the subscription form-of agreements are in place, you'll begin the process of fundraising. I'm not sure what kind of LP interest you have now or what type of money you're going after, but this is usually the difficult part of the process. This is where you're going to go back and forth with LPs negotiating the terms of their subscription, giving them comfort, entering into letter agreements to carve out various things not discussed in the LPA, etc.

If this is your first vintage and you aren't the scion of some mega manager, I expect this part to be your biggest stumbling block. The easiest money to get is HNW/family friends, followed by private foundations, and then large corporate/state pension plan money - this gradation is purely based on size. Small LPs will be less knowledgeable about what is market and may therefore be less picky about the terms of their subscription, however they are smaller and will therefore require more effort to get the requisite number for hitting your funding target. Small LPs can also slow things down because they subscribe to fewer funds, meaning things run less clockwork on their end than they do with larger institutional investors.

For many, the ideal situation to be in is to have one or two big investors with a few hundred million in apiece, as the operational and transactional costs of the fund increase with each LP. If that's not possible for you, then you should try to get some small investors, and at some point hopefully they will snowball into a large enough quantity that other larger LPs will take interest. In my experience, some small guys need to get in before the big guys follow suit.

  1. After you hit your funding cap, you're basically in a good position. Your lawyers can handle the closings, or you can with their help. Afterwards, there are some filings you have to do with the SEC (a Form D for example, if you are setting up as a 506(B) offering), as well as some state securities filings ("blue sky filings"). You will need to retain a law firm to stick with you on an ongoing basis, as PE funds will need legal work done on them from time to time through the life of the fund. Post-closing items encompass everything from regulatory filings to portfolio company acquisition, LP transfers and the most favored nations process.

PM me if you have any specific questions.

Array
 

There's obviously lots of stuff to figure out on this, but having done with this a number of clients, and explored it with a number of others, I would hone your focus on what truly matters to succeeding at this. It's 3 things:

  1. Capital: I love the posts that talk about starting small and building your capital. But, no matter what size you start with, your question is, can you get the amount of capital you want on the terms you want? Obviously, an investment fund is an incredibly simple business model, and this is the juice. I suggest you don't just want the capital, but you want to have a highly methodical approach to consistently raising it. (what I call a capital machine)

  2. Lead Generation: Cut through all the noise, and every private equity and real estate investing business comes down to these two things: Can you get the capital? Can you source and execute on attractive deals? Most people figure that deals will show up, etc. I suggest, again, you want to step back now and develop a badass approach to how you go to market and drive lead generation. (this I call a lead gen machine...)

  3. Is team: Honestly, if you get the first two right, the team will show up. But, if you're looking to drive a real capital raise, you must be able to demonstrate that you've got the team in place to drive the business. You may not need to have them hired and ready to go. But you certainly must be able to recruit the right team to succeed.

Former banker and investor, advisor to senior Wall Street pros. Learn more at geoffblades.com
 
ArthurHOU:

The emails are indeed quite good. As someone managing a private grassroots investment fund myself and having an extremely difficult time raising assets, you wonder how the hell stuff like this even gets off the ground... Nearly $1M in assets that could have gone to an actual emerging manager somewhere in the world.

Just promise your investors a consistent return and show them your fraudulent history of significant returns.

 

That made me laugh... Speaking of... I'm looking for people to invest in my own Fund. It's called Frieds Capital Management. I am the only Alternative Asset Manager who invests in a very specific subset of the investment world. I am particularly focused on bowling, booze, weed, nihilsts and rug, especially rugs that tie the room together, related investments. Would you be interested in getting into this opportunity at the ground level?

Hrm... where have I heard that pitch before?

 
Frieds:

That made me laugh... Speaking of... I'm looking for people to invest in my own Fund. It's called Frieds Capital Management. I am the only Alternative Asset Manager who invests in a very specific subset of the investment world. I am particularly focused on bowling, booze, weed, nihilsts and rug, especially rugs that tie the room together, related investments. Would you be interested in getting into this opportunity at the ground level?

Hrm... where have I heard that pitch before?

Are the rugs exotic and imported? Send sub. docs.

 
Frieds:

That made me laugh... Speaking of... I'm looking for people to invest in my own Fund. It's called Frieds Capital Management. I am the only Alternative Asset Manager who invests in a very specific subset of the investment world. I am particularly focused on bowling, booze, weed, nihilsts and rug, especially rugs that tie the room together, related investments. Would you be interested in getting into this opportunity at the ground level?

Only if you have a shomer shabbos clause. I don't invest on shabbos.

 
LinkedIn:
Opportunities Mark is looking for: Joining a nonprofit board

Hasn't he already done that via CEO of his fund?

LinkedIn:
Causes Mark cares about: ... Poverty Alleviation

At least this was true.

EDIT: The "People also viewed" section is also interesting. Cocktail waitress at #2 sends some kind of message.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 

This may be ridiculous to us, but think about it from his perspective: he went from serving cocktails to living what he thought was the dream. Almost $1mm since, I believe, 2010. This guy is a god to the cocktail waitress who's #2 "most viewed" on his profile.

On another note, a fund manager I know is connected to this guy. Perhaps I'm on to something...

 
M- Weintraub:

On another note, a fund manager I know is connected to this guy. Perhaps I'm on to something...

This guy sent LinkedIn connection invitations to many, many people at the fund I worked at last summer. I never accepted as it seemed suspicious (especially after reading his profile). A lot of people did accept and he endorsed them for everything, which also seemed weird. That kind of solidified my original gut instinct that there was no way this guy was as successful as he claimed to be.

 

The guy is a scumbag but his "investors" also deserved to lose their money. They could have independently verified his credentials. They could have realized that his fund's strategy was just a bunch of buzzwords with 0 specifics, or that his biography is more of a hagiography. They could have been more suspicious of the too-good-to-be-true returns. They could have been more skeptical of a guy with such a large and shamelessly self-promotional social media presence who can't even write passable English. It goes on...

As Gordon Gekko would say, a fool and his money are lucky enough to get together in the first place....

 
mrb87:

The guy is a scumbag but his "investors" also deserved to lose their money. They could have independently verified his credentials. They could have realized that his fund's strategy was just a bunch of buzzwords with 0 specifics, or that his biography is more of a hagiography. They could have been more suspicious of the too-good-to-be-true returns. They could have been more skeptical of a guy with such a large and shamelessly self-promotional social media presence who can't even write passable English. It goes on...

As Gordon Gekko would say, a fool and his money are lucky enough to get together in the first place....

No - his investors don't deserve to lose their money.

Bloomberg and BarclayHedge are the ones to blame. They did no diligence what so ever, and investors thought they were using trusted sources. Given their position in the market they should not get away with this. Madoff and co. coned a lot of hard working people because too many fuck heads in positions of power (fund of funds etc...) did not do a proper due diligence.

You can say whatever you want about "oh, but I would have checked"; we all make mistakes. Sometimes costly, and sadly that retired guy who might not be all there lost part of his pension. Not great.

 

The sad part about it is that none of these investors made the appropiate due diligence before handing this guy their money. The first red flag is that he talks about his accolades and all that bs but doesn't properly explain the strategy the firm uses to create a return. Sadly most of the people that were swindle by this buffoon are not "sophisticated" investors.

 
Colombianmonkey:

The sad part about it is that none of these investors made the appropiate due diligence before handing this guy their money. The first red flag is that he talks about his accolades and all that bs but doesn't properly explain the strategy the firm uses to create a return. Sadly most of the people that were swindle by this buffoon are not "sophisticated" investors.

Totally agreed. This bothers me too. Looking at things as simple as his education history raises questions.

Even worse that none of these big information providing firms did the diligence either. Yeah, they have a disclaimer, but you couldn't even look up the manager's damn licensing status? Like how many people read this info too...

Cases like SAC are much different from this. This was very preventable and should be a point of these info providers with thousands of viewers...

 

If enough people repeat a lie... it eventually becomes accepted as the truth. If a reputable institution makes an assertion about a manager, read the footnotes.

Play the long game - give back, help out, mentor - just don't ever forget where you came from. #Bootstrapped
 

Best part of his website is the market opinions.

Latest Market Opinion 08 November 2014, from Mark Malik, Oil West Texas Intermediate crude slid for a fifth time in six days after OPEC cut forecasts for the amount of oil it needs to supply and the dollar strengthened. Oil is going down to $75.

Gold Gold will slide big time in 2015. The profitable strategy is: short gold as much as you can.

EUR Euro will drop down to 1.2355 and then we will see where it goes from there on. Dollar is getting stronger and will remain dominant in 2015. European equities will increase due to more money in markets their bonds will decline so will the euro.

 

I don't get how this guy could go around saying he went to Yale and had all of these positions without anyone calling his bluff. I'm surprised he never ran into anyone who was also at Yale or the other companies he claimed to have worked at, and realized he was a fraud. Just doesn't make sense.

Use more debt than your competition or get out of the business. Any other policy is either self-limiting, no-win, or a bet that the competition will go bankrupt before they displace you. - Bruce Henderson
 

I don't get how this guy could go around saying he went to Yale and had all of these positions without anyone calling his bluff. I'm surprised he never ran into anyone who was also at Yale or the other companies he claimed to have worked at, and realized he was a fraud. Just doesn't make sense.

Use more debt than your competition or get out of the business. Any other policy is either self-limiting, no-win, or a bet that the competition will go bankrupt before they displace you. - Bruce Henderson
 

Okay, so ex-cop Mr. Malik here is a global economist and hedge fund manager, who graduated in Philosophy, is a member of the US Chess Federation, and supports everything 'non-profit'. Interesting.

So legit that his heart denied him an attack when he wanted one. Ofcourse, he is the 'werewolf' at Wolf Hedge, dying is not an option.

Can't say about the money anymore but I bet he is in deep monkey shit.

 

My opinion and advice because i used to have this dilemma more than once is to firstly take enough experience and then decide to start up your own firm. Be sure to take this significant step and try before resign to ask some of the interested people in order to be secure before leave.

 

From what I have read on the subject, you start out with just a little bit of money (maybe a handful of people put in 150k+) and then you look for a small, local company to buy and make improvements to. If I remember correctly, thats how KKR got started, they bought out a family-owned dental supply company that had an aging patricarch. Nothing like RJR or TXU of course. I think that's the key in starting your own PE firm, start small to increase your money and prove your prowess to others and then go from there.

 

I'm not sure but it seems like (this will be too obvious) you should just build an extremely good track record because investments (from limited partners, or whatever) are going to keep the fund/firm going. If you take $150K from people, you really better know what you're doing. Otherwise, you could earn yourself a bad rep that will haunt you. I suspect that good/rich investors are going to really do the due diligence on you before investing with you in the future.

 

Blackstone group was started by Schwarzman and Peterson after Schwarzman had already been an MD at Lehman and Peterson had been the CEO at Lehman. They started it with $400k. You can definitely do it though if you feel like you've got what it takes. . . Also, another idea is to make sure you have a good network with people who are capable managers. Maybe, you might need to replace management of the business. I have interned at a PE shop but I really don't feel like I know enough to thoroughly answer this question.

 

I know exactly how this question can be answered. There's a few paths.

1) You start out with an advisory firm. M&A advisory shops have very low overhead. Just get a phone and start calling people and try to put some deals together. Later, start a "merchant banking" (or whatever) practice.

2) Build track record at another firm, then go raise your own fund.

3) You can actually start what's called a "fundless sponsor". What this means is that you raise money deal by deal. So it's not really you that needs to be good, it can simply be the deal you dug up.

4) Cobble together some money and buy a small firm. Then build your record this way. This process is long and painful.

5) Don't do PE. Do something like VC, which require much smaller investments per deal.

A PE shop does require some background, not only for finding the money, but for getting the leverage to finance your deals. Banks don't like to give newbies leverage just like they don't like giving credit cards to those without a credit history.

 

It's not enough to be able to do the job; you have to be able to sell yourself and your competency to investors, at least initially. That doesn't mean you need to be a great public speaker, but it means that rich people need to trust you with their money. That requires 1) access to rich people (which is probably the hardest aspect of it all), 2) fluency of subject matter and articulateness, and 3) actual demonstrated competency.

If you develop the competency and can speak fluently about the business, then your greatest task is getting in front of rich people. I think you need to "sell" yourself to "normal" people and get them to buy-in on a small real estate project, and then you need to perform. Do it a few times and you'll earn people's respect and you'll earn access to their contacts.

Array
 

Im not sure what type of shop you want to start. Your title says "development company." Now, it's very common for a developer to branch out after getting enough experience and put his own deals together. But you work on the equity side. You're not an operator. If you tried to start your own development company and went to your current boss for equity, couldn't he say, "Why should I give YOU this money when you do the same thing I do and that guy over there is an actual nuts-and-bolts developer/operator?" It seems like it would be an easier pitch if you were to spend some time working for an actual developer first (if you are in fact interested in starting your own development company as your title says). Just a thought.

 

this is my goal long term as well. it seems you are in a great spot and you probably have exposure to everything working at a small shop--one of the overlooked benefits of not working for a global firm. what if you were to go to your boss and ask for extra assignments that were more development focused? if you could learn in house, knowing the PE side and capital raising would put you at a huge advantage once you do set off on your own. just a thought...

 

JimboUSC: Why did your boss advise against a MS in RE? Is it pursued mostly to break into RE? I heard about the NYU RE Finance/Development online certification programs. This is something I may pursue rather than going the full MS route - saves money/time.

Virginia Tech 4ever: My current shop only has a couple of development projects and not much else in the pipeline. I would assume larger shops have more projects going on at once that would allow me to learn enough that I can eventually speak fluently about the business. So my question is: does it make sense to jump ship to a larger firm now or go the school route (MBA vs MS)? Even starting out with small projects requires selling myself and I just wonder if more diverse experiences at a larger firm and/or and MBA/MS will help me do that besides being competent in acquisitions/development.

Prospie: I would like to start a shop that focuses on one off development projects as well as on acquisitions via PE funds. On the other point you raised, currently, we actually do one off development projects as well and I get to see the development process (approval --> financing/leasing --> construction --> Asset Management). So technically, I am seeing both sides - equity and nut/bolts developer.

cpdevelops: I am actually involved in the nuts and bolts of development as mentioned above, which is great. Though, I am concerned that I am not seeing enough projects to learn as much as I need to.

 

@"CRE12" I would like to get to where you are post-MBA. Can @"JimboUSC" or any of the above posters comment on THE target role post MBA for one looking to accomplish the OP's goals? I will be coming from the construction mgmt angle pursuing RE finance/investment in B-school; however, my goals will be to see dealflow as the OP mentioned and after a few years of deal eval and project management, do my own deals. Is there a position other than development associate that would be more in tune with @"CRE12"'s interests?

 

I would either get a MBA/MSRED and work for a developer for a few years; or stay in current company and work your way up and partner with an experienced developer (hopefully someone older and has access to private capital). You can help be the money guy.

You need to ask yourself, what do I bring to the table?

Did I: - source the deal - get the money for the deal - develop the deal - operate the deal

Your cut will depend on how much of the above you do.

Have compassion as well as ambition and you’ll go far in life. Check out my blog at MemoryVideo.com
 

Edit: be the money guy (financial modeler, OM creater) and idea generator (sourcing deals, things that youthful hungry guys like to do as opposed to older richer and busier guys; generally speaking).

Have compassion as well as ambition and you’ll go far in life. Check out my blog at MemoryVideo.com
 

@"odog808" can you elaborate on having the nose for finding deals? this topic is a bit elusive to me as I have always been led to believe that no one deal is truly novel and many players are fighting over certain pursuits

 

Hi cpgame, in real estate there is a certain value add perception for finding off-market deals or having strong broker relationships that eventually help you win deals in a marketed scenario. The ability to get off-market deals depends on the market (some cities, everyone uses brokers), and usually there is a reason why the seller would go off-market compared to fully marketed with brokers. Some of the reasons are the need for entitlement work (seller relies on buyer to maximize the value of the property), need for confidentiality (there are tenants or employees that if they knew of the sale would somehow harm the seller), or there is an assemblage play that the controlling of multiple parcels unlocks the value and you the developer are initiating the transaction. Because there are trade offs between price paid and ability to execute, the buyer-seller relationship becomes less adverse.

Having a nose for the deal means that you see value where the market has not recognized the value. After you do it, then the market realizes and values go up for similar strategies. That's one area of value add in real estate development.

Skills like this are partially innate (need high level of intellectual curiosity and hustle) and the result of working with wiser people than yourself. This takes time, especially if your daddy isn't also in the business and you are just taking over.

Have compassion as well as ambition and you’ll go far in life. Check out my blog at MemoryVideo.com
 

As someone who went out on his own very young, I can definitely attest to what he says and 100% agree with him. Although I had some bases covered in terms of value proposition and edge in the markets (commodities focused HF, not PE), the lack of experience definitely made its presence on numerous occasions that probably wouldn't have occurred with more experience under my belt.

I don't know how it is for you guys in PE, but in the HF world the other big aspect that many guys don't consider at all is the business side of operating a HF. Most HFs are run by traders who believe it's all about the trading and the reality is that it's far from it and initially you can't staff an exec to run the business side or have a service provider covering every base, it's not realistic. Traders don't know how to run businesses, plain and simple. - Trader

 

1 if you really have that money. You will learn way more and if you want to trade on the buyside then sales and trading isnt really that job...u will be learning about sales and market-making. If you have already come to the point where you feel you can run money and actually have that cash lined up then you shouldnt turn it down. Upside of #1 could be enormous whereas #2 can at most get you a job in sales and trading which may at some point in the future lead to an entry-level position on the buyside. Even if you dont make any money the experience will be worth ten times what you get in the S&T job. If you fail it will still be a unique line on the resume.

The key is whether you can actually see through #1 and get the business off the ground...the worst of all worlds would be turning down the SA offer and then not getting your business going either.

 

I second #1 if you actually have that money lined up. If you knock it out of the park, that's awesome. If you crash and burn, you could really spin it on a resume as a time you showed some balls and went for it - I know a couple guys in trading that go nuts over kids with a "go get em" attitude.

A caution - your algorithm may not scale. What works with $10k might not work with $200k. And of course the standard disclaimer on backtesting - "Past performance is not a guarantee of future results."

If you go for #1, make sure you (and your investors) are acutely aware of the possibility that you may lose a substantial portion of that capital.

- Capt K - "Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. If you want to make ambitious people waste their time on errands, bait the hook with prestige." - Paul Graham
 

Thanks a lot for the comments. It really encouraged me. Some sponsers have really tight bond with me and my partner, so $150,000 ~ $200,000 is almost guaranteed, and possibly more. I've decided to just go for #1. Me and my partner went to the NY court today and registered a general partnership company. As we go along the line we'll change the form of the company as we solicit investors.

I'll give you guys an update within a few months if I succeed(or fail).

Thanks for the comments. And I'd appreciate any more advice/critique on this thread. It will be a lot of help.

 

Sorry for the bump, but what happened? I'd be really curious to hear if this worked out for you.

I'm like one of them marriage counselors. Charge by the hour to tell some fool he needa bring some flowers home. Then charge another hour telling the bitch she oughta suck some cock every little once in a while. Keep a marriage strong like that. -Prop Joe
 

i started leveredhedge.com - attempting to be an M&I for S&T. More content driven traffic with a product (the interview guide).

Its just something to bring in something extra every week, its not gonna make or break my year, but its nice to have an extra X every week. The thing that attracted me is that the margin is very high. Pay for hosting, domain and payment processing and thats it.

 

Sidebar question:

How does a company like Lot18 ever plan to generate substantial revenues ($>10M)? I can't image they get more than 100 orders/day, and the average price is most likely under $50. To be conservative, let's say 100 @ $50/day is the case, they don't even generate $2M/year in that scenario. That's not even accounting for the split with the wineries.

Am I missing something about their business model that would justify venture capital interest? Am I underestimated the customer size?

 
f1mpladed:
no havent even heard of it before... checking it out now...

im designing the site and on there will be the ability to buy it ... credit card, paypal etc

No, magento is an open source platform. If you are selling a product its the best thing you can use. Plus with open source (and a little knowledge of php, html, and css) you can build your own theme.

looking for that pick-me-up to power through an all-nighter?
 

If any of you want to start a porn site, the market isn't saturated as long as people keep having male babies and sex offenders get parole, I'll volunteer to be the dude IF I get to wear a V for Vendetta mask and the first movie is called "Midas does Mid-Town."

If I had asked people what they wanted, they would have said faster horses - Henry Ford
 

Do you have a stellar track record (relative to the market, not in absolute terms) and/or a reason to convince institutions and/or the ultra wealthy to entrust you with large sums of money? No track record/history is often a non-starter right out of the gate for attracting capital. Additionally, economies of scale go a long way with respect to the administrative, legal, and accounting required to run a business in this industry.

Disclaimer: I've never started a fund. Someone feel free to correct me if I'm being overly pessimistic.

 

To even get on the radar of the "unsophisticated" foreign institutions, you'll have to be in a database like evestment or mercer, who will sniff out your BS immediately. Even if you do get someone to commit, they won't want to be more than X% of the fund, so you won't be able to raise much with your $1M initially. Since you don't seem to have a real strategy, you'll end up losing more of your own money than what you gain in fees. But go for it! Plenty of guys make it this way, and as long as there are those like you out there, I feel pretty good about my ability to generate value and deliver alpha to my clients.

 

How will they "sniff out my BS" as you put it when I won't market the fund until I've narrowed it down to the best performing one and rolled the assets of the other funds into best performing one? Am I missing something? I get that this isn't 100% ethical but this shell game is a common practice in the mutual fund industry.

 
FloridaGuy:

My plan is to set aside $250,000 of my money into ten different incubator funds at $25,000 each. At the end of say 12 months, whichever fund performed best will be used as the key fund going forward to market to investors. This will maximize my chances of being able to market the highest performance numbers possible given my strategy.

In case you don't realize, this is both extremely dishonest and extremely unlikely to work out for you.

Either way, institutional investors don't give money to random guys off the street, regardless of track record. Neither is a $25k, 1-year account going to mean anything anyway.

 

EightyTwo,

It's not dishonest, it's called being effective at raising money, mutual fund firms including big ones like Fidelity and American Century used to do it [and still do maybe?] all the time.

That was my question- it won't appear for marketing purposes as a 25k account. It will be a 1M account with a good track record that started out with 25k in assets. Nobody will know the difference. Right?

If you have a moral issue with that, I suggest you try change the securities industry laws as mutual fund firms have been doing stuff like this for decades.

 

Archervice, which part is fraud? The part where I shut down the other funds that did worse and roll the assets into the best one? If that's fraud how come no other firm or mutual fund has been prosecuted for it? Are you denying that it happens in the fund industry?

 

I never said I would market the fund as growing from 25k to 1M. Indeed that would be fraud. I just said that on the investor prospectus it would show the main fund having say a 18.5% annual return. Anyone with a brain can figure out that 25k to 1M requires more than a 18.5% return in one year. There is no need to legally disclose that other funds were added after that period, to my knowledge. So yes it would simply appear that I risked more capital to begin with than I really did, that's all. To my knowledge this is not illegal or fraudulent and is in fact a common practice historically in the fund business.

 

You're assuming all potential investors are going to read over the pamphlet you hand them and be sold with your returns. Did you ever consider they might, I don't know, ask you questions? Such as how much capital did you initially invest, what percentage of your equity experienced the XX% growth vs. which was injected after the fact.

Oh, and this also assumes someone with this brilliant plan can also achieve returns that anyone would bother to look over twice.

 

Why are you studying for the GMAT as a sophomore? Just take it easy, take the PWM iship (pretty typical for a BB aspiring kid after sophomore year) get good grades, and get laid/party. I would work for at least a few years, unless you have a really good, not decent, idea. You'll need the experience/capital for any start up. 2000 usd ain't gonna cut it.

 

C) Take the internship and take a class or two to get your grades up. Do not bother with the GMAT as a sophmore, it would be a waste of time and it is only good for 5 years, so unless you are absolutely sure you will be getting your MBA two years out of school it is a waste.

Start a tech company or some non-profit stuff? Have something very clear in mind before you invest your time and money. It doesn't sound like you really have a clue, save your money to buy yourself some beer during the school year, after all you will not be making any money during your internship. If you still think your idea is great, you should have plenty of time to develop it during the school year.

 

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